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Today the media are reporting the results of a Covid insurance test case, recently brought by the Financial Conduct authority.

In recent months, the government-imposed lockdown forced many small businesses to close. Many of these firms subsequently made insurance claims under their business interruption (BI) policies, only to be refused a pay-out. A large number of insurers claimed that their policies did not cover a lockdown.

Now the High Court has ruled that, in certain circumstances, insurers should have paid out. The Guardian reports that some 370,000 firms are affected by the ruling. They should hear from their insurer in the next week.

What does the COVID insurance test case ruling mean?

If you tried to make a claim under business interruption insurance, what happens next depends on the type of BI policy you have.

In most cases, SMEs only have insurance that covers business interruption as a result of property damage. If you have one of these policies, you are very unlikely to receive any pay-out.

However, some BI policies are more comprehensive and cover business interruption from other causes. As the FCA says, these include policies that:

“…cover for BI from other causes, in particular infectious or notifiable diseases (‘disease clauses’) and non-damage denial of access and public authority closures or restrictions (‘denial of access clauses’).”

In some instances, insurers have paid out under these policies, but a significant number have disputed their clients’ claims. The FCA brought its test case to gain clarity on these key instances, as well as a number of others.

What was the ruling?

As so often with legal matters, the ruling in the case was far from simple. It is over 150 pages long!

The FCA directs interested parties to a summary provided by its legal team, Herbert Smith Freehills, which is available here.

However, in a nutshell, the ruling decided that:

  • Most (but not all) BI policies that have disease clauses provide cover against the COVID-19 pandemic.
  • Some ‘denial of access’ clauses also provide cover. However, this depends on the detailed wording of your policy and how coronavirus affected your business.

What happens next?

As the FCA says, “Each policy needs to be considered against the detailed judgment to work out what it means for that policy.” However, if your claim is affected, you should hear from your insurer within the next week.

Of course, none of this prevents any potential appeal of the ruling by insurance firms. However, even if there is an appeal, some insurance firms may agree to settle claims before its outcome is known.

So, if you have an affected policy, first wait to hear from your insurer. After then, it may be wise to get legal advice on how your BI policy is affected by the detailed judgement.

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About Ben Locker

Ben Locker is a copywriter who specialises in business-to-business marketing, writing about everything from software and accountancy to construction and power tools. He co-founded the Professional Copywriters’ Network, the UK’s association for commercial writers, and is named in Direct Marketing Association research as ‘one of the copywriters who copywriters rate’.

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